Approaching £90,000 turnover? Do not miss the VAT registration threshold.

A friendly reminder from Coalesco Certified Accountants about the rolling 12-month test and why VAT registration is not always as bad as it first appears.

We have recently seen several businesses unexpectedly pass the compulsory VAT registration threshold.
The threshold is currently £90,000 of VAT-taxable turnover. The part that catches people out is that this is not tested only at the end of the tax year or accounting year. It is measured over a rolling 12-month period.

That means the calculation must be checked at the end of every month.

How does the rolling test work?
At the end of each month, add together your VAT-taxable sales for the previous 12 months.
For example, on 31 August you would review your turnover from 1 September of the previous year to 31 August of the current year. On 30 September, the calculation moves forward one month.

If the total goes over £90,000, you must normally notify HMRC within 30 days of the end of the month in which you exceeded the threshold. Your VAT registration usually takes effect from the first day of the following month.



Example and Date
Rolling turnover first exceeds £90,000 – 31 August
Deadline to notify HMRC – 30 September
Normal effective VAT registration date – 1 October

There is a separate forward-looking test. If you expect your taxable turnover to exceed £90,000 in the next 30 days alone…for example, because of one large contract, you may need to register immediately.

Turnover means sales, not profit
The test looks at taxable turnover before expenses. A business can therefore make only a modest profit but still be required to register.

Standard-rated, reduced-rated and zero-rated sales generally count. VAT-exempt income does not, although businesses with a mixture of income need to check the position carefully.

Do not wait for the accounts to be prepared. By then, the registration date may have passed and the business could owe VAT that it did not charge to customers.

VAT registration is not always bad news
VAT registration can feel worrying, particularly where customers are members of the public. However, it can also have advantages.

You may reclaim VAT on business costs
Under normal VAT accounting, the business charges VAT on taxable sales and reclaims VAT on eligible purchases.
This can be valuable for businesses buying materials, stock, equipment or subcontracted services. There may also be an opportunity to reclaim VAT on certain costs incurred before registration, subject to the detailed time limits and evidence rules.

Business customers may not mind
If most customers are VAT registered, they can usually reclaim the VAT charged to them. Registration may therefore have little effect on the true cost to the customer.
Some larger customers and suppliers may also view VAT registration as a natural sign that the business is growing.

Better records and pricing discipline
VAT forces a business to maintain regular digital records and review its figures each quarter. It also encourages owners to understand margins and price work properly rather than relying only on the bank balance.

What are the disadvantages?
The main concern arises where customers cannot recover VAT.
A business selling to the public may have to increase a £100 price to £120, or absorb some or all of the VAT within the existing £100. Absorbing the VAT reduces the amount retained by the business and can significantly affect profit.

Other disadvantages include:
– Preparing and submitting VAT returns
– Keeping VAT-compliant digital records
– Setting aside the VAT collected so it is available for HMRC
– Understanding the correct VAT rate for each sale
– Managing errors, credit notes and bad debts correctly
– Possible cash-flow pressure where customers pay slowly

The commercial impact should be reviewed before the threshold is crossed, while there is still time to adjust prices and customer communications.

Could the Flat Rate Scheme help?
The VAT Flat Rate Scheme is available to many businesses expecting taxable turnover of no more than £150,000 excluding VAT.
You still charge VAT to customers in the normal way, but instead of deducting VAT on most purchases, you pay HMRC a fixed percentage of VAT-inclusive turnover. The percentage depends on the type of business.

The scheme can offer:
1. Simpler calculations
2. Easier cash-flow forecasting
3. A possible financial benefit where costs carrying VAT are low
4. A 1% reduction in the flat-rate percentage during the first year of VAT registration

However, it is not automatically cheaper.

Why do materials matter?
Under normal VAT accounting, a business can generally reclaim the VAT on eligible materials used in making taxable supplies.
Under the Flat Rate Scheme, VAT on day-to-day purchases is normally not reclaimed separately because an allowance is built into the flat-rate percentage. Businesses with substantial materials, stock or other VAT-bearing costs may therefore be better under normal VAT accounting.

The scheme also has a limited cost business test. A business spending very little on qualifying goods may have to use the higher 16.5% flat rate, which often removes much of the benefit.
Not every cost counts as qualifying goods. Services such as accountancy, advertising, rent, subcontract labour and downloaded software do not count. Vehicle costs are also generally excluded unless the business operates in the transport sector.
This is why the Flat Rate Scheme should be calculated using the business’s actual sales and costs—not selected simply because it sounds easier.

What should you do now?
If your annual turnover is approaching £90,000:
– Check taxable turnover on a rolling 12-month basis every month
– Do not rely only on your financial year totals
– Review prices and customer contracts before registration
– Compare normal VAT accounting with the Flat Rate Scheme
– Consider the VAT incurred on materials, stock and equipment
– Speak to us promptly if you exceed the threshold or expect one large month of sales

Our view
Passing the VAT threshold is often a sign that a business is growing. Registration creates extra responsibilities, but it does not have to be a disaster.

The outcome depends heavily on the customer base and the costs of the business. A business selling mainly to VAT-registered companies and buying substantial materials may adapt easily and benefit from input VAT recovery. A consumer-facing service business with few costs may face a greater pricing challenge, although the Flat Rate Scheme might be worth considering.
The important thing is to identify the threshold early. Planning before registration is far easier than correcting a late registration after VAT should already have been charged.

Coalesco Certified Accountants can monitor your rolling turnover, complete the registration and compare the VAT schemes using your actual figures. Get in touch with us by  visiting our website – https://coalesco.co.uk/, call us on 0115 238 3228 or email info@coalesco.co.uk or pop in to see us at our office in Wollaton, Nottingham. 

This article reflects the VAT rules and thresholds in force in August 2026. Individual supplies and business structures may require specific advice.